Rare Earths: No Buyers for Mountain Pass; Canada’s Strange Project

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The sole major U.S. rare earths mine will stay safely mothballed even as its former owner, Molycorp Inc., exits chapter 11 bankruptcy freed by the process of the obligations of owning it, likely ending for some time any attempt by a U.S.-based company to locally produce the specialized battery and magnetic elements on a mass scale.

Rare-Earths_Chart_September-2016_FNL

We believe in you, Texas Mineral Resources Corp., but we’re waiting on the results like the rest of the country. Also, we love the new name.

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Molycorp failed to sell its Mountain Pass mine in San Bernardino County, Calif., as part of its bankruptcy case. Molycorp became Neo Performance Materials after it exited bankruptcy and no longer has any connection to the Mountain Pass mine and facility where it shut down production a little more than a year ago.

Paul Harner, the chapter 11 trustee in charge of the mine, warned recently there was no point in continuing a separate bankruptcy for it as there was no money to do anything with the property even if the trustees wanted to.

Zombie Mine Lease

Lexon Insurance Co. offered to lend Mountain Pass’ estate $4.2 million to maintain the mine and continue the search for a buyer. The mine still costs money to keep in a safe condition and California environmental authorities are watching. Until the maintenance fund runs out — or prices change enough to make it able to reopen and don’t take that bet (see below) — Mountain Pass will exist in a state limbo, neither fully closed nor able to be restarted.

The Lahontan Regional Water Quality Control Board, part of California’s network of water safety overseers, said that it least wants to keep the lights on, the gates locked and the pumps running.

Pumps at Mountain Pass confine groundwater contaminated with barium, nitrate, radium and uranium.

Low Prices = Closed Mines

The open-pit mine was the sole U.S. source of rare earths. When rare earths prices were high back in 2011, Molycorp plowed $1.5 billion into the Mountain Pass facility but shut it down last year as prices continued to erode for both light and heavy rare earths. Before declaring bankruptcy, Molycorp vowed to focus its production on its operations in Estonia.

Prices have stayed low for the last three years so it’s no surprise that Molycorp and the bankruptcy court couldn’t find a buyer. Our Rare Earths MMI registered another 17, charting pretty much the same flat course it’s coasted through for the last three years.

China removed export quotas on producers of the magnetic and battery metals at the end of 2014 and — while demand from cell phone, computer and defense manufacturers has remained steady to up ever since — supply of heavy rare earths from China and Australia’s Lynas Corp. has more than filled the gap.

Other nations are still interested in developing their own rare earth resources as no one wants to experience a Japan-style Chinese producer boycott, which actually happened in 2011 when Chinese producers cut off their neighbor with no official statement or explanation why. The boycott ended just as mysteriously as it began, but one thing it did do was inspire major Japanese manufactures such as Honda Motor Corp. to find substitutes for heavy rare earths so they could scale back reliance on their testy neighbor.

Why Didn’t Molycorp Fail Earlier?

Molycorp probably stayed alive longer than it should have due to such sentiment. It even got kid-glove treatment on 20/20 in a last-ditch effort to avoid bankruptcy, one that MetalMiner Co-Founder and Executive Editor Lisa Reisman poked several holes in when it happened. The concern over rare earths was actually a market distortion caused by hype and not a reflection of the actual availability and abundance of the materials.

Canada’s Rare Earth Quest

Yet, in Canada — as with TMRC’s Round Rock, Texas, deposit — exploration is continuing and there is plenty of investor interest in providing manufacturers with a source of yttria, neodymium and dysprosium oxide.

Quest Rare Earth Minerals, a Canadian company, has vision for a mine at Strange Lake, on the Labrador-Quebec border, and it inched a bit closer to reality this month after submitting environmental impact statements to the Canadian government.

The company hopes to mine rare earths there and process them in a facility they will construct very similar to the what Molycorp did at Mountain Pass. Yes, they’re planning to do the exact same thing Molycorp did only with a government that will likely place even more restrictions and market disadvantages on the project than the U.S. federal government slapped on Molycorp. There are caribou where Quest wants to mine, so hold onto your wallets, investors!

Quest President Dirk Naumann, however, acknowledged that the market environment might be a bigger hurdle than any environmental hurdle such as local caribou paths.

“The economy around the globe (as far as) mining and resources is concerned, faces lots of difficulty,” he said.

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If that’s not the understatement of the year, he should also note the difficulty the PARTICULAR rare earths market faces. Being able to produce and refine its own rare earths is a laudable goal for any nation’s government, just as supporting local manufacturing and enough farm capacity to feed all its people in case of a disaster is, but to blindly throw money into an oversupplied market in hopes of prices coming up someday in the future?

That’s just called bad economics. Check out that chart. We usually expert our price curves to, well… curve. It really does all come down to the third rule of acquisition.

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